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The Time for a Guaranteed Annual Income Might Finally Have Come

The cost of a Guaranteed Annual Income depends on how generous it is, how quickly benefits are phased out with additional income and how existing social programs are affected.(Image: 2jenn/Getty Images/iStockphoto)

Could the Guaranteed Annual Income, once considered a radical notion, now be an idea whose time has come?

The Dutch city of Utrecht recently announced an experiment to determine whether introducing a basic income produces a more effective society. Joseph Ceci, Alberta’s new Finance Minister, proposed a guaranteed income program last year on the election campaign trail. Both Calgary Mayor Naheed Nenshi and Edmonton Mayor Don Iveson have touted similar programs. Now, medical officers of health and boards of health members across Ontario are officially calling for provincial and federal governments to bring in a basic income guarantee.

So what exactly is a Guaranteed Annual Income (GAI)?

GAI has actually been supported by generations of economists and welfare theorists, on the left and right. One version works like a refundable tax credit. If an individual has no income from any source at all, they receive a basic entitlement. As earned income increases, the benefit declines, but less than proportionately. As a result, low-income earners receive partial benefits so that they aren’t worse off than they would have been if they had quit their jobs and relied solely on income assistance.

This means that there is always an incentive to work, and people who work are always better off than they would be if they didn’t work.

So why are such a broad group of people – finance ministers, mayors and medical officers of health – pushing such a program? Poverty, substantial evidence now tells us, is one of the best predictors of poor health. And poor health costs everyone.

Research in Hamilton demonstrated that residents of the Ontario city’s wealthy West Mountain neighbourhood lived, on average, to 86.3 years of age, while average age at death for residents of one of the poorest Hamilton neighbourhoods was only 65.5 years – a shocking gap.

Way back in the 1970s, Manitoba tried implementing a GAI in Winnipeg and in the small town of Dauphin.

In Dauphin, everyone was eligible to participate. A family with no income from other sources would receive 60 per cent of the Statistics Canada low-income cutoff, which varied by family size.

Every dollar received from other sources would reduce benefits by 50 cents. Important for an agriculturally dependent town with a lot of self-employment, the GAI offered stability and predictability. Sudden illness, disability or unpredictable economic events would no longer be financially devastating. The project ran for four years, ending in 1979.

So did the GAI produce anything to report? Remarkably, even this four-year program had strong positive results. Dauphin high school students were more likely to remain in school than had been true in the years before the GAI started or after it stopped.

The health of town residents also improved, with fewer hospitalizations (an 8.5-per-cent reduction), specifically for mental illness, accidents and injuries.

So how much would introducing a GAI across Canada cost?

According to several Queen’s University professors, the cost of replacing social assistance (which includes welfare and disability support) and Old Age Security (which includes a top-up for low-income seniors), plus providing every adult with an annual income of $20,000 and children with an income guarantee of $6,000, would be $40-billion. The Fraser Institute calculates the total cost of Canada’s current income support system (payout plus administrative costs) at $185-billion in 2013.

Our own estimates, which build on existing social programs, range from a gross annual cost of $17-billion for a program that (in today’s dollars) is slightly more generous than was offered in Dauphin, to a “Cadillac” version costing $58-billion that would guarantee everyone a minimum income equal to the low-income cutoff and pay at least some benefits to people earning well above the low-income cutoff.

The cost of a GAI depends on how generous it is, how quickly benefits are phased out with additional income and how existing social programs are affected.

Some of these costs, of course, would be partially recovered from the additional taxes paid by recipients, as well as the lower costs faced by so many other social programs that are driven by poverty. Hospital care alone, for example, cost Canada $63.5-billion in 2014.

Bottom line, whether it’s our calculations or those done by other organizations, a GAI is definitely doable. And it is clear that the potential benefits are substantial.

Maybe it’s time for the rest of Canada to at least look to what Alberta is saying and focus on the health, educational and financial benefits that the Guaranteed Annual Income might offer.

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Professor Evelyn Forget is a health economist at the University of Manitoba. Her re-examination of Dauphin’s MINCOME and ongoing work on Guaranteed Annual Income is supported by the Canadian Institutes of Health Research and the Social Sciences and Humanities Research Council.

Further

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